Helping businesses to greatly reduce the amount of taxes they owe, tax planning is an important task that’s often confused with tax preparation; however, the two are entirely different things.
Tax preparation is when you – or a tax professional – arranges your taxes for quarterly or annual filing, while tax planning helps you to formulate an advanced strategy surrounding your tax requirements.
Through the in-depth study of deductions and credits incurred by a business throughout the year, business owners and/or managers can help to reduce their tax burden, and many choose to have a professional accounting firm handle this on their behalf.
Who is best placed to help you with tax planning?
Unless you’re a highly trained accountant yourself, the best person to help you make significant savings through small business tax planning, is a certified public accountant, or CPA.
Why do small businesses struggle with tax planning?
In the majority of instances, small business owners often take on a variety of tasks, from heading management and product development to accounting, and such multitasking often leaves managerial and accounting tasks relegated to a year-end exercise, and nothing more. Unfortunately, when tax planning is treated in such a way, the activity tends not to have any significance or impact, and when taxes are cash-based and the timing of cash receipts and vendor repayments are crucial, it takes on even less significance.
The maintaining of detailed records of all business-related expenses for audit purposes is vital when calculating tax deductions, and when harried business owners neglect to record daily activities such as cost of goods sold, occupancy cost, taxes and wages, travel and insurance to name but a few, they can easily find themselves desperately trying to prove that the expenses were made for business purposes. Not only that, but it’s important to stay up-to-date with changes to tax laws, and any related policies, and most business owners who wear a variety of hats when running their company, will never find the time to do this.
Why you should hire professional help and make tax planning a priority – now!
Hiring a third party to help you plan your taxes effectively is a smart solution, but it’s important to understand that the whole process of reducing your taxes, doesn’t (and cannot) happen overnight. In fact, in many cases, businesses must engage with a professional for a minimum of 2 financial years before they start seeing their taxes reduce significantly, making it all the more important to begin working with them as soon as possible.
By meeting on a regular basis with your advisors, accountants and CPA (if you outsource to a third party you’ll get access to a variety of professionals at no extra cost), you should start to see a reduction in the amount of taxes you owe, and feel more confident to run your business successfully.
So, don’t leave your tax planning until the end of the financial year, and for the best results, don’t be afraid to seek professional help.